A shift in economic conditions in which the change in the interest rate on all maturities is the same number of basis points. In other words, if the three month T-bill increases 100 basis points (one %), then the 6-month, 1-year, 5-year, 10-year, 20-year, and 30-year rates all increase by 100 basis points as well. Related: Non-parallel
shift in the yield curve.

Used in the context of general equities. Trade whose size is only part of the total customer indication/order, usually made to avoid a compromise in price and also to get some business instead of losing the customers inquiry/order to a competitor.

When only a portion of the total shares in an account is voted. For example, a broker has 1,000 shares and sends out a card to each of four shareholder clients. If only three of the four client cards are returned to the broker, the broker will submit only 3/4ths(750 shares) of the total 1,000 shares to vote. If the fourth card arrives later, an additional vote can be counted.

Preferred stock that can be converted into common stock at the option of the holder. In contrast, to the usual preferred stock, the value of the preferred stock is refunded to the holder. That is, one gets conversion plus the value of the stock.

Used in the context of general equities. Investments representing an interest in a pool of funds or in other instruments, such as foreign securities, that allow participation in the rise or fall of a security
or group of securities.

A strategy that involves minimal expectational input, and instead relies on diversification to match the performance of some marketindex. A passive strategy assumes that the marketplace will reflect all available information in the price paid for securities, and therefore, does not attempt to find mispriced securities. Related: Active portfolio strategy.

A method for calculating financial charges that charges no interest on a balance as long as that balance is paid off within a pre-determined time period; the balance remaining after the interest-free period is over is then considered "past due," and is penalized by the application of an interest rate. The past due balance method is applied to both credit card and charge accounts.

A patent gives the owner the right to prohibit/exclude others from using his/her patented technology. It does not even grant the patent owner the right to practice his/her own technology (called ‘freedom of operation’) because his/her patent may be dominated by another person's or persons' patent(s) that could exclude him or her from doing so.

The loss of cash resulting from a swap into higher-priced bonds or the need/willingness of a bank or other borrower to pay a higher rate of interest to get funds. Used in the context of general equities. (1) When an investor who wants to buy a stock at a particular price hesitates and the stock begins to rise; instead of letting the stock go, he "pays up" to buy the shares at the higher prevailing price. (2) Buy shares in a high-quality company at what is felt to be a high, but supportable, price due to its quality.

A method of making payment that is used to maintain control over payments made on behalf of the firm by personnel in noncentral locations. The payer's bank delivers the payable through draft to the payer, which must approve it and return it to the bank before payment can be received.

PIK toggles pay interest in cash at one rate or, at the company's option, pay interest in additional PIK toggle notes. The interest paid in additional notes is set at a higher rate than the cash interest rate.

Collective term for mechanisms (both paper-backed and electronic) for moving funds, payments and money among financial institutions throughout the nation. The Federal Reserve plays a major role in the nation's payments system through distribution
of currency and coin, processing of checks, electronic transfer of funds and the operation of automated clearinghouses that transfer funds electronically among depository intitutions; various private organizations also perform payments system functions.

The argument that external financingtransactions costs, especially those associated with the problem of adverse selection, create a dynamic environment in which firms have a preference, or pecking-order of preferred sources of financing, when all else is equal. Internally generated funds are the most preferred, followed by new debt, and debt-equityhybrids. Finally, new equity is at the least preferred source.

A federal tax that can be applied if a plan holder does not meet certain requirements when making withdrawals from a tax-advantaged retirement plan (for instance, if the plan holder has not reached age 59-1/2). This penalty tax is owed in addition to any income taxes due.

Used in the context of general equities. Stock that typically sells for less than $1 a share, although it may rise to as much as $10/share after the initial public offering, usually because of heavy promotion. All are tradedOTC, many of them in the local markets of Denver, Vancouver, or Salt Lake City.

A form of poison pill providing that in the event of a hostile takeover attempt, any excess pension planassets can be used to benefit pension plan participants. This prevents the raiding firm from using the pension assets to finance the takeover. In the context of corporate governance, these provisions prevent an acquirer from using surplus cash in the pension fund of the target in order to finance an acquisition. Surplus funds are required to remain the property of the pension fund and to be used for plan participants' benefits.

The Act requires companies with underfunded pension plans to pay higher premiums to the Pension Benefit Guaranty Corporation (PBGC). The Act also extended the requirement of providing funding to the pension systems of companies that terminate their pension plans and raised the maximum amount employers are allowed to invest in their own plans.

Also known as performance-accelerated restricted stock ("PARS") and time-accelerated restricted stock award plans ("TARSAPs"). Grants of restricted stock or restricted stock units which may vest early upon attainment of specified performance objectives. Otherwise, a time-vesting schedule would remain in effect.

The decomposition of a money manager's performance results to explain the reasons why those results were achieved. This analysis seeks to answer questions such as: (1) What were the major sources of added value? (2) Was short-termfactor timing statistically significant? (3) Was market timing statistically significant? and (4), was security selection statistically significant?

A series of payments from an annuity, qualified retirement plan, or 403(b)(7) account made over a certain term of years. A payment from an IRA, even if over a period of years, is not considered a periodic payment for tax purposes.

Financial activities closely related to banking that may be engaged in by bank holdingcompanies (BHCs), either directly or through nonbank subsidiaries. For example, a BHC might own finance companies or engage in mortgage banking. The Federal Reserve Board determines which activities are closely related to banking. Before making such activities permissible, the Board must determine that performance of the activities by bank holding companies is in the public interest.

The argument that the difference in personal tax rates between income from debt and income from equity eliminates the disadvantage of the double taxation (corporate and personal) of income from equity.

A type of incentive grant in which the recipient is not issued actual shares of stock on the grant date but receives an account credited with a certain number of hypothetical shares. The value of the account increases over time based on the appreciation of the stock price and the crediting of phantom dividends. Payout may be settled in cash or stock.

A graph which shows all possible states of a system. In phase space we plot the value of a variable against possible values of the other variables at the same time. If a system had three descriptive variables, we plot the phase space in three dimensions, with each variable taking one dimension.

A graph that supposedly shows the relationship between inflation and unemployment. It is conjectured that there is a simple trade-off between inflation and unemployment (high inflation and low unemployment, and low inflation and high unemployment). Named after A.W. Phillips. Obviously, the relation between these important macroeconomicvariables is more complicated than this simple graph would suggest. For a modern treatment, see work of Robert Lucas.

An option whose underlying security is a physical commodity that is not stock or futures. The physical commodity itself (a currency, treasury debt issue, commodity) - underlies that option contract. See also index option.

Describes bid and askedprices a broker quotes for a given security. Used for listed equity securities. Bid and ask prices and quantity information from a specialist or from a dealer regarding a particular security (i.e., "IBM's 1/4 to 1/2, 5m by 10m").

The entities that establish pension plans, including private business entities acting for their employees; state and local entities operating on behalf of their employees; unions acting on behalf of their members; and individuals representing themselves.

Used to quote a price in 64ths. Dealers in government bonds normally give price quotes in 32nds. To quote a bid or offer in 64ths, they use pluses; a dealer who bids 4+ is bidding the handle plus 4/32 + 1/64, which equals the handle plus 9/64.

A price-only chart that takes into account only whole integer changes in price, i.e., a 2-point change. Point and figure charting disregards the element of time and is used solely to record changes in price.

In non-linear dynamics, an attractor where all orbits in phase space are drawn to one point, or value. Essentially, any system which tends to a stable, single valued equilibrium will have a point attractor. A pendulum which is damped by friction will always stop, so its phase space will always be drawn to the point where velocity and position are equal to zero. See: Attractor, Phase Space.

The risk associated with possible negative events such as expropriation of assets, changes in tax policy, restrictions on the exchange of foreign currency, or other changes in the business climate of a country.

A fraudulent investment scheme. Investors are promised very high returns by the promoter. The original investors often realize these high returns because their payouts are funded by cash from new investors. New investors' cash is used to pay out the original investors. The investors' funds are usually not applied to the stated purpose. However, the reported high returns attract additional inflows of capital used to pay out subsequent investors. The scheme fails when the payouts to existing investors and/or redemption requests exceed new investor inflows.

Used in the context of general equities. The beta of a portfolio is the weighted sum of the individual asset betas, According to the proportions of the investments in the portfolio. E.g., if 50% of the money is in stock A with a beta of 2.00, and 50% of the money is in stock B with a beta of 1.00,the portfolio beta is 1.50. Portfolio beta describes relative volatilityof an individual securitiesportfolio, taken as a whole, as measured by the individual stockbetas of the securities making it up. A beta of 1.05 relative to the S&P 500 implies that if the S&P'sexcess return increases by 10% the portfolio is expected to increase by 10.5%.

Used in the context of general equities. Number between 0 and 1 that measures the strength of correlation of movement between the portfolio/stock and the index. Indeed, the R2 is the square of the correlation. For hedging purposes, the higher the R2, the better.

A New York Stock Exchange rule that governs the behavior of specialists. Positive obligation is the
mandate of the specialists to step in and act as either the buyer or the seller public investor orders exist do not match up naturally. Also known as affirmative_obligation.
Related: negative_obligation.

The established system of priorities of trades in an exchange. For example, the highest bid and lowest offer have highest precedence; the first bid or first offer at a price has highest priority, and large orders have priority over smaller orders.

Method of charging interest in which the annualinterest is either deducted from the face amount of the loan when the funds
are distributed or is added to the total amount and divided into the regular payments.

A biased expectations theory that believes the term structure reflects the expectation of the future path of interest rates as well as risk premium. The theory rejects the assertion that the risk premium must rise uniformly with maturity, but instead profits that to the extent that the demand for and supply of funds do not match for a given maturity range, some participants will shift to maturities showing the opposite imbalances, as long as they are compensated by an appropriate risk premium whose magnitude will reflect the extent of aversion to either price or reinvestment risk.

The amount of cash today that is equivalent in value to a payment, or to a stream of payments, to be received in the future. To determine the present value, each future cash flow is multiplied by a present value factor. For example, if the opportunity cost of funds is 10%, the present value of $100 to be received in one year is $100 x [1/(1 + 0.10)] = $91.

Determined by dividing current stock price by revenue per share (adjusted for stock splits). Revenue per share for the P/S ratio is determined by dividing revenue for past 12 months by number of sharesoutstanding.

Adjustment mechanism under the classic gold standard allowing disturbances in the price level in one country to be wholly or partly offset by a countervailing flow of specie (gold coins) that would act to equalize prices across countries and automatically bring international payments into balance.

Announced by the Federal Reserve in March 2008, PDCF is an overnight loan program provided funding to primary dealers and bolster financial markets overall during the financial crisis. Credit under the program was secured with collateral. The facility was shut down on Feb. 1, 2010.

This refers to a large financial institution that offers services to large institutional clients or hedge funds. It is possible for a firm to have more than one prime broker. Importantly, the firm is not obligated to all of its business through the prime broker. The prime broker offers a variety of services which includes but is not limited to execution of trades, settlement, financing and custody.

Usually refers to the area within an investment bank that deals with high grade fixed income. This group
will not just trade bonds on the secondard market but will be actively involved in the debt financing of new projects. Many firms have Principal Finance Officers.

The head of an investment bank's Principal Finance division or a person that overseas the principal finance dealings of a firm. These dealings usually involve high grade bonds that are used to finance new
projects for firms.

Used for listed equity securities. System used in an auction market, in which the first bid or offer price is executed before other bid and offer prices, even if subsequent orders are larger. NYSE rules stipulate that the bid made first should be executed first, or if two bids came in at once, the bid for the large number of shares receives "priority." The bid not executed is then turned to the broker, who informs the customer that the trade was not completed because there was stock ahead. See: Standing.

Occurs when private investors take a sizable investment in publicly traded corporations. This usually occurs when equity valuations have fallen and the company is looking for new sources of capital. This is a means by which a public company gets additional access to the equity markets in express mode-- they already have public shares trading and this is an additional offering to investors under a securities purchase agreement, the issuer promises to register the shares typically via a resale registration statement within so many days after the closing. In context of private equity, PIPEs is the investments by a privte euqity fund in a publicly traded company. The investments usually take form of preferred stock at a discount.

Theory suggesting that a firm initially establish itself locally and expand into foreign markets in response to foreign demand for its product; over time, the MNC will grow in foreign markets; after some point, its foreign business may decline unless it can differentiate its product from competitors.

A graphical representation of the potential outcomes of a strategy. Dollars of profit or loss are graphed on the vertical axis, and various stock prices are graphed on the horizontal axis. Results may be depicted at any point in time, although the graph usually depicts the results at expiration of the options involved in the strategy.

The range within which a particular position makes a profit. Generally used in refernce to strategies that have two break-even points - an upside break-even and a downside break-even. The price range between the two break-even points would be the profit range.

Often used in two ways. First, pro forma earnings refers to projections of earnings. This is often used internally or on a road show for an IPO. Second, it refers to a way of reporting earnings that excludes non-recurring items such as restructuring charges, extraordinary items.

Tangible, long-lived assets that a company owns and uses in its operations, rather than simply holding them as an investment. This includes buildings, construction, facilities, machinery etc. and is reported on the balance sheet as acquisition cost less the accumulated depreciation.

Refers to the division between cash and stock in a takeover offer. Often a takeover is a combination of cash and the acquiring firm's equity. Shareholders can elect to take cash or equity. After the election is made, the stock is prorated. For example, if the takeover offer was 500 million in cash and 500 million in shares, if everybody elected cash, then the maximum cash for each shareholder is 50%. If 75% elected to receive cash, 25% of the shareholders would get 100% equity and the other 75% would get 75% cash and 25% equity. The proportions are complicated to compute if the new shares are worth more than the old shares. In this case, small shareholders (with say 100 shares) might receive 100% cash because it is disadvantageous to have a lot less than 100 shares.

The idea is to scale the P/E ratio by earnings growth. Higher P/E multiples could be a result of higher growth
opportunities. Expected earnings growth is usually derived from proprietary sources such as Institutional Brokers' Estimate System (IBES), First Call, or Zach's. The usual implementation is to divide the current P/E ratio by the
five-year prospective earnings growth. This ratio is problematic if expected earnings growth is negative. As with the
usual P/E ratio, zero or very small earnings causes problems too. For stock selection, I usually recommend looking at E/P (earnings price ratio) and expected earnings growth as two separate factors rather than a single PEG ratio. I also
recommend looking at different horizons for expected earnings growth -- not just five years.

Formal written document to sell securities that describes the plan for a proposed business enterprise, or the facts concerning an existing one, that an investor needs to make an informed decision.
Prospectuses are used by mutual funds to describe fund objectives, risks, and other essential information.

Assure the salesperson or trader that interest, buy or sell, will be attended to,
given any change in the trading circumstances, as follows: At a price: If the stocktrades
at a certain price or price range, the trader will show this market to the salesperson and thus allow participation under these favorable circumstances. Floor protection: Representation of a client on the floor of the exchange-so that if size were to trade at his price or a better price, salesperson would participate. Volume (OTC): If a certain amount of volume trades (that parallels the protectee's interest), trader assures salesperson of reasonable participation in the trading activity. The extent of this protection depends on liquidity, number of market makers, and other aspects of the stock.

A position that has limited risk. A protected short sale (short stock, long call) has limited risk, as does a protected straddle write (short straddle, long out-of-the-money combination). See also Combination and Straddle.

Authorization, whether written or electronic, that shareholders' votes may be cast by others. Shareholders can and often do give management their proxies, delegating the right and responsibility to vote their shares as specified.

A group of individuals appointed by the board of directors of the companies to formally represent the shareholders who send in proxy cards, to vote the represented shares in accordance with the shareholders' instructions.

A battle for the control of a firm in which a dissident group seeks, from the firm's other shareholders, the right to vote those shareholders' shares in favor of the dissident group's slate of directors. Also called proxy fights.

Document intended to provide shareholders with information necessary to vote in an informed manner on matters to be brought up at a stockholders' meeting. Includes information on closely heldshares. Information required by the SEC that must be provided to shareholders who wish to vote for directors and on other company decisions by proxy.

A rule set forth in the Uniform Prudent Investor Act that states that a fiduciary trustee has the legal obligation to invest and manage trustassets as a prudent person would, taking into account, among other factors, general economic conditions, risk, and liquidity requirements in an attempt to create a portfolio or investment strategy with objectives suited to the trust.

The Bond Market Trade Association's Mortgaged Asset-Backed Securities Division's prepayment model based on an assumed rate of prepayment each month of the then unpaid principal balance of a pool of mortgages. PSA is used primarily to derive an implied prepayment speed of new production loans. 00% PSA assumes a prepayment rate of 2% per month in the first month following the date of issue, increasing at 2% percentage points per month thereafter until the 30th month. Thereafter, 100% PSA is the same as 6% CPR (Constant prepayment rate).

The orders to buy or sell, entered by the public, that are generally away from the current market. The order book official or specialist keeps the public book. Market-Makers on the CBOE can see the highest bid and lowest offer at any time. The specialist's book is closed (only he knows at what price and in what quantity the nearest public orders are). See also Market-Maker and Specialist.

A company that has held an initial public offering
and whose shares are traded
on a stock exchange or in the over-the-counter market. Public companies are subject to periodic filing and other obligations under the federal securities laws.

Public debt can refer to either 1) treasury securities held by institutions outside of the issuing country's government, or 2) total of govenment debt including intra-government obligations. Debt by governments are issued to compensate for a lack of tax revenues.

PPP Approach, one of the main approaches in financing the large-scale infrastructure projects, is very similar to Build-Operate-Transfer (BOT) Approach but the sole difference lies in the two approaches’ output criteria. In the PPP model, unlike with BOT, the government buys service from project companies at agreed-upon prices and thus has a greater influence in production decisions and bears a greater share of project risks; thus the project companies are not overly exposed to changing market conditions.

A popular index released in Manufacturing ISM Report by the Institute for Supply Management on the first of the month. The index reflects percentage of purchasing managers that reported better business conditions compared to the previous month. A reading above 50% indicates expansion in manufacturing sector; below 50% indicates the sector's contraction.

Applies to derivative products. Option
pricing principle that says, given a stock's price, a put and call of the same class must have a static price relationship because arbitrage opportunities or activities will always reestablish such a relationship.

This security gives investors the right to sell (or put) a fixed number of shares at a fixed price within a given period.
An investor, for example, might wish to
have the right to sell shares of a stock at a certain price by a certain time in order to protect, or hedge, an existing investment.

An illegal, fraudulent scheme in which a con artist convinces victims to invest by promising an extraordinary return
but instead simply uses newly invested funds to pay off any investors who insist on terminating their investment.

A type of stock swap option exercise in which a small number of previously-owned shares
is surrendered to the company to pay a portion of the exercise price, for which a slightly larger number of option shares may be purchased, which are then immediately surrendered back to the company to pay additional amounts of the exercise price, and so on until the full option price has been paid and the optionee is left with just the number of shares equal to the option spread. With the advent of broker-assisted "Cashless Exercise/Same Day Sale" programs (see above), pyramiding has fallen out of favor.